Telecom Tax Blog

    The Five Best and Five Worst States for Starting a Telecom Solutions Provider Business

    Posted on Mon, Sep 16, 2013 @ 01:00 PM

    Are you thinking of becoming a solutions provider?  If so, what are the Five Best States for starting a technology business?  What are the Five Worst?

    CRN published an interesting article that looked at a broad range of criteria.  Here are the lists and brief explanations.  But, no matter where you start your business, SureTax can deliver your telecom tax solution, including VAT calculations for over 200 countries.

    Top Five

    #1 Utah.  Tech savvy and very pro-business.
    #2 Virginia.  Low taxes, limited regulations, sizable pool of educated workers and a virtually recession-proof economy.
    #3. Colorado
    #4. Washington
    #5. Maryland
     

    Bottom Five

    #50.  West Virginia.  Limited pool of IT educated workers and very limited business opportunities.
    #49.  Hawaii.  High labor costs and business expenses, taxes and regulatory environment, and business opportunity.
    #48. Wyoming
    #47. Arkansas
    #46. Mississippi

    Tags: telecom tax, voip tax, telecom taxes, telecommunications taxes, voip taxes, VAT tax, cloud computing

    Machine 2 Machine Telecom, Telecom Tax and Bananas

    Posted on Fri, Feb 8, 2013 @ 09:57 AM

    The SureTax® team just returned from the IT Expo East conference where is it clear that telecom continues to be a growth industry.

    Among the takeaways from the conference was the enormous explosion of the M2M (machine to machine) market.   Just when you thought the telecom market could not get any more diverse, enter the banana monitoring devices.  Yes, that is right - banana monitors. 
 


    Apparently bananas are one of the most profitable items in a grocery store, but with the shortest shelf life.  So, one ingenious company has developed a monitor to track the stage of ripening on the tree.  That information is transmitted to logistics where the process between harvesting, packing, shipping and stocking is timed precisely to maximize the amount of shelf life the bananas have in the store. 
 


    This was just one of many examples of telephony enabled devices (in this case wireless network) that are rapidly entering our day to day activities.  Rest assured that as these new telecom markets grow, governments will be right behind them, ready to capture new tax revenues.
 


    CCH SureTax is leading the way in research and knowledge for emerging telecom markets such as M2M.  As the universe of tax changes, we are here to help.

    Tags: telecom taxes, telecommunications taxes, telecommunications tax, machine 2 machine, m2m

    Telecom Tax Avoidance and "Qui Tam"

    Posted on Wed, Jan 9, 2013 @ 11:11 AM

    At SureTax®, our services support telecom tax calculation for the purpose of compliance.  The notion being that if a company does not comply with tax laws, they are subject to fines and penalties.

    But, what if a company cheats - doesn’t pay taxes - and is caught by a whistleblower?  Then what happens?

    There is a provision in common law call called qui tam, which is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitu, meaning ‘he who sues in this matter for the king as for himself’.  It’s a principle that is still alive in US law and it means that whistleblowers can earn some or all of the collections of a case presented on behalf of the government.

    Earlier this year, a whistleblower brought a qui tam case in New York under the state’s False Claims ActNew York attorney general Eric Schneiderman intervened in that case against a national wireless provider for deliberately under-collecting and under-paying $100 million dollars in sales taxes on wireless access plans.

    But, what about the federal tax?  Why not bring a qui tam case there also?

    A loophole in federal law prohibits whistleblowers from bringing qui tam cases.  The IRS has a whistleblower office, where whistleblowers can go to file a complaint.  But, if the IRS decides not to take the case, it’s over and the whistleblower has no qui tam option.

    In New York, the defendant must have at least $1 million in sales and must have deprived the state of at least $350,000 in revenue.

    Maybe Congress needs to take a look at New York to figure out how to increase collections.  A federal qui tam law could do for tax fraud what nickel return deposits did for aluminum can recycling.

     

    Tags: telecom tax, voip tax, telecom taxes, telecommunications taxes, telecommunications tax, ucaas, tax calculation, voip taxes, VAT tax

    Smartphones for Everyone

    Posted on Mon, Sep 10, 2012 @ 09:42 AM

    As we at SureTax® focus on telecom tax and VoIP tax, we can’t help but a little distracted by the new hardware.  The new Kindles have just been released (not a smartphone, but 3G and 4G enabled) and the new iPhone 5 debuts tomorrow.

    So, how is the handset market?  Handset shipments had grown at a compounded annual growth rate of over 15% between 2009-2011.  Over 2 billion handsets will be shipped in 2015.  The primary driver of demand has been new smartphones, like the iPhone and Droid phones.  Even in the most remote corners of the planet, it’s not enough just to talk any more.

    Worldwide, global mobile penetration is 91%.  The implications of bringing mobile communications and data access to everyone on the planet are astounding.  

    Smartphones have driven that penetration, taking Western Europe and North America to OVER 100% in some markets.  Asia Pacific and Africa are still growing at over 9% per year.

    What does that mean in terms of opportunity?  As subscriber growth mirrors population growth, the opportunity is in the replacement handset market and providing services to the users on the platform.  Give some thought as to what services could be provided if everyone in the world had a smartphone.  By “if”, we mean “when” because that day is coming.

    While you do that, we’ll think about who’s going to impose the telecom taxes and how we’ll provide the tax calculation piece of the equation.

     

     

     

     

     

     

     

     

     

    Tags: voip tax, telecom taxes, telecommunications taxes, telecommunications tax, voip taxes

    PSTN ends on 2018, at least that's the plan

    Posted on Tue, Aug 7, 2012 @ 11:01 AM

    As VoIP tax and telecom tax service providers, we find telecom to be fascinating.  It seems not that long ago when 96%+ of all Americans had a landline telephone.  In fact, if you DIDN'T have a landline phone, it was a sign that something was wrong.  It was tough to get a loan without a landline phone.

    Here are amazing stats presented by the Technology Advisory Council to the FCC.

    - By 2014, the United States will have fewer than 42M access lines

    - Access line losses were nearly 6.6 million between 2Q09 and 2Q10, a drop of 7.3%.

    - By 2014 US consumers will have 31.6 million VoIP lines accounting for 42.5% of all U.S. access lines

    - Fixed lines continue to decline; mobile is the preferred choice for voice communication

    - More than 25% of U.S. consumers aged 18 or older have already given up their voice landline for voice wireless‐only service.

    The biggest stat of all is that by 2018, only 6% of Americans are expected to have traditional landline service.  So, 2018 is expected to be the last year of the PSTN (and its tax revenue).

    Perhaps the supreme irony is that in the early days of the internet, families would get a second phone line for their modems.  Phone companies (even the term "phone company" seems archaic) saw PSTN line growth exploded.  That same desire for digital and mobile communication is leading the PSTN's demise.

    There's a moral in there somewhere....

     

    Tags: voip tax, i-voip tax, i-voip taxes, telecommunications taxes, telecommunications tax, voip taxes

    3 Taxation Mistakes that VoIP Providers Make - Part 2

    Posted on Tue, Jul 17, 2012 @ 01:05 PM

    Last post, we covered Mistake #1 - Not understanding what regulatory variation of VoIP you were providing.

    Mistake #2 is to not understand the concept of telecom tax-on-tax.

    Tax-on-tax is a difficult topic.  Tax-on-tax represents a process by which telecommunications providers must factor the additional dollar amount attributable to either the same tax or a different tax invoiced to consumers into their adjusted tax remittance calculations.

    Historically, tax literature has traditionally been silent regarding the rules & system of application to calculate tax-on-tax.  Nevertheless, as a matter of practice, tax authorities require vendors to include tax amounts collected from subscribers within the tax base of a given tax.  Consequently, tax managers need to develop an effective methodology to determine (A) when tax-on-tax applies and (B) how to calculate the amount of tax actually owed to the government.  If a company doesn’t understand all of the nuances associated with factoring tax on tax correctly, the company will wind up paying tax on the amount of the tax passed-through to the consumer - even if this extra increment of tax is NOT collected from the consumer!

    For example, the pass-through amount appearing on a consumer's invoice must be included in the amount of Total Taxable Revenue reported to the taxing authority on the company's tax return.  If a company charges the consumer only the initial sum resulting from the 1st calculation of tax on the service, it will fail to collect the entire amount of tax owed to the taxing authority. In some states, such as New York, this could cost a provider as much as 1% in lost revenue. 

    The company must calculate a “grossed-up” tax rate in order to assure that the amount of tax collected and the amount of tax owed are the same.

    So, what factors do tax managers need to consider in order to determine whether tax-on-tax applies and what taxes may/must be included in the base? 

    The first step is to determine the following:

    1. Does any statutory exclusion exist for tax-on-tax?

    2. Incidence of the tax. Is the tax (A) Consumer-Based or (B) Provider-Based?  As a general rule, consumer-based taxes will be excluded from the tax base of other gross receipts-based taxes, while as a general rule provider-based taxes featuring an optional pass-through rule will be included within their own tax base as well as in the tax base of other gross receipts-based taxes.  However, these are just general and not always the case such as in Pennsylvania where they ruled that disputed taxes and surcharges are a “cost of doing business” that a telco is only allowed to recover from customers pursuant to state PUC regulations and tariffs.

    3. Tax Base Measurement – Is the tax levied as: (A) a Flat Fee or (B) a Percentage of Gross Receipts?  Assessments imposed in the form of “flat fees” will exclude other taxes from their own tax base

    4. Pass-Through Rules – Is the pass-through of the tax:

    5. (A) Prohibited, (B) Optional, or (C) Required? Taxes with a prohibited pass-through rule will generally be excluded from the tax base of other gross receipts-based taxes.

    Next determine if the states in which you operate are part of the Streamlined Sales Tax Project (SSTP).

    The Streamlined Sales Tax Project (SSTP) adopted official policies regarding tax-on-tax.  In both the Agreement itself (SSUTA) and the accompanying “Rules & Procedures” (which interpret the actual text of the Agreement), specific provisions have been adopted informing:

    1. Taxpayers when tax-on-tax needs to be collected 

    2. Taxing authorities as to the situations where laws or regulations may be enacted to replace the default guidelines with a customized set of rules, as well as the conditions that must be satisfied in order to implement such state-specific policy “overrides”.

    To know what these host of conditions are and what states apply them, download our presentation on our website entitled “Tax-On-Tax: Hall of Mirrors”.

    What about Federal Taxes?  Do I include those in the base?

    The general rules concerning federal Taxes are:

    1. Any federal tax that is directly imposed upon a consumer (based upon the same set of rules governing state or local taxes) are excluded from “sales price” when separately stated on the invoice given to the consumer.       Example:  Federal Excise Tax on Communications (FET)

    2. Federal taxes/surcharges that are imposed upon the seller or treated as a “cost of doing business” to the seller are included within the sales price, regardless of whether such taxes are separately stated on the consumer invoice.  Example:  Federal Universal Service Fund (FUSF) Surcharge

    [Streamlined Sales Tax Rules and Procedures – Rule 327.9]

    Again, these are just general rules and are not necessarily the rules that every state applies.  In order to properly calculate tax-on-tax you must know how each state you do business in treats things like franchise fees, FET, Right of Way fees, and e911 fees as they relate to gross receipts for the purpose of taxation.

    If you feel confused or overwhelmed, don’t feel bad.  This certainly isn’t “the flat tax”.  The topic is confusing and overwhelming.  But, if you are a VoIP provider, you have a duty to collect and remit taxes no matter how difficult the process. 

    Coming soon...  Mistake #3.

    Tags: telecom tax, voip tax, telecom taxes, telecommunications taxes, telecommunications tax, voip taxes

    3 Taxation Mistakes that VoIP Providers Make - Part 1

    Posted on Thu, Jun 28, 2012 @ 12:53 PM

    So, you’re a VoIP operator trying to figure out your VoIP taxes.  Confusing, isn’t it?

    It’s so confusing that many new operators decide that calculating telecom tax is just too complex (our VoIP whitepaper can help).  Some implement the “Ostrich Strategy” and stick their head in the sand - figuring that they will pay their tax once they get “big enough”.  Other operators rely on best guesses or tax advice from their general accountants and attorneys.  Either choice can be disastrous, leading to audits from any number of federal and state agencies that can put their VoIP start-up on the road to destruction before it even gains traction.

    Let me help you sort through the VoIP tax confusion.  Let’s start with the beginning.

    VoIP tax was born in 2004.  As the FCC attempted to shore up the Universal Service Fund,  it created the “IP-in–the-Middle” Order.  In that order, the Commission ruled that VoIP is a telecommunications service and thus subject to USF obligations if it is “an interexchange service that: (1) uses ordinary customer premises equipment with no enhanced functionality; (2) originates and terminates on the public switched telephone network (PSTN); and (3) undergoes no net protocol conversion and provides no enhanced functionality to end users due to the provider’s use of IP technology”. 

    Next, regulated VoIP was defined in 2005.  The FCC created a new category of regulated communications service called I-VoIP (Interconnected Voice over Internet Protocol.  I-VoIP is the standard that the legal community uses to decide which VoIP services are regulated).  The FCC defines I-VoIP with four major characteristics, and a provider must possess all four of these characteristics or it is not I-VOIP, but perhaps a VoIP Toll.  (For a detailed understanding of these characteristics, please download our VoIP whitepaper).

    Suppose you checked your VoIP offering versus the FCC’s  four characteristics and you’ve determined that you are regulated.  Now you need to figure out what "flavor" of VoIP you are offering.  

    While the FCC has defined two categories of VoIP (I-VoIP and VoIP Toll), there are still different flavors of VoIP within these categories - such as Fixed and Nomadic VoIP (details are included in the VoIP whitepaper) - and each flavor carries with it even more nuances. 

    These flavors are important.  Each VoIP nuance carries significance not only at the federal level, but also at the state level because taxation and regulation vary so much from state to state.  Some states limit their regulatory powers to E-911 and Public Safety, while others regulate through their Department of Revenue and other state taxing authorities.  The taxes that they may assess include:

    • State and Local Sales and Use Tax
    • Excise Tax
    • Gross receipts tax
    • Utility Users Tax
    • E-911 (both State and Local)
    • Local Telecommunications taxes

    If you are an I-VoIP; you must also file a Form 499-A (at a minimum), which reports your revenue data for the calculation of obligations to:

    • Federal USF
    • Federal TRS (Relay) Fund
    • North American Numbering Plan Administration
    • Shared costs of local number portability
    • FCC Regulatory Fees

    Still confused?  It’s understandable.  It’s a complex subject.

    What next?  The first step is to download our VoIP whitepaper.  Then, watch for our next two installments of this blog.  The whitepaper and blog articles will help you sort this out.   Until then, figure out what flavor of VoIP you offer. Here are some questions you should answer:

    1. Is the service fixed or nomadic?
    2. Is the service associated with static IP address or is it “over the top”?
    3. How do I source the fees, by jurisdiction of the calls or billing address?
    4. How do I represent these taxes properly to comply with Truth-in Billing?  (Hint: see blog post #3 in this series).

    If you need more immediate help, contact me.  I’m glad to talk you through issues and share my expert contacts with you.  

    Until then...stay tuned for Part Two – Tax-on-Tax..

    Click me

     

    Tags: telecom tax, voip tax, i-voip tax, i-voip taxes, telecom taxes, telecommunications taxes, telecommunications tax, voip taxes

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